News

Getting behind the gap in public, private dealership profits

August 24, 2015

Automotive News

Publicly traded dealership groups' reported first-half profits were much higher than what private dealerships reported to the National Automobile Dealers Association, Alan Haig noted in his quarterly The

Haig Report on dealership operations and blue-sky values.

The publics reported operating income rose 15 percent in the first half from a year earlier. Profits at privately held dealerships, as reported by NADA, averaged $1.1 million per store in 2014 and rose a much smaller 6.2 percent through May this year, the most recent data available.

Are private dealerships really that much less profitable than public ones?

Certainly, scale allows large, public dealership groups to negotiate better rates with vendors and consolidate back-office functions for savings. And the NADA averages may be skewed toward smaller, less-efficient dealerships. Traditionally, a third of NADA's membership has been single-point dealers.

In addition, the publics are motivated by shareholder pressure to maximize their profits on a quarterly basis. But private dealerships are likely to underreport profits for tax reasons, in part by adding as many costs as possible to the expense side of the ledger. One buy-sell adviser tells of a dealer owner who counted his horse as a dealership expense.

Noted Haig: "Many dealerships are substantially more profitable than the data reported to NADA that goes into the average pretax profit figures. Most of our clients' stores are averaging $2 million-$6 million in profit per rooftop."